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The Partnership charter

Millions of people co-own closely held companies, family businesses, and business partnerships, but establishing them and keeping them together is never easy. Here, finally, is the guide they have been waiting for.... Read More

Asking the Key Questions Before the Merger

It looks good on paper. Potential problems have been considered and addressed. The financial aspects are agreed upon. What could go wrong?

The Washington Business Journal recently published an article recounting the difficulty two small business owners – Jeremy Farber, owner of PC Recycler, and Elizabeth Wilmot, owner of Turtle Wings – encountered when they tried to merge their companies (Washington Business Journal, 2/3/12 – “Chantilly electronics recycler PC Recycler breaks down its breakup with one-time partner, talks future growth”). Their experience is well worth examining. As many would-be partners discover, the process is not as simple or painless as hoped or expected. As Emily Mekinc reports:

“I think I got caught up in ‘what could be,’” Farber says. “You don’t think about the possibility that you’re not going to get along. Maybe even not seeing eye to eye socially. Every social opposite that you would never think of absolutely plays into the business place.”

Farber says he made a mistake by looking only at the strengths and weaknesses of the two companies and not getting to know the owner of the company he planned to merge with.

He notes that Turtle Wings and PC Recycler were both very closely held companies, and neither owner wanted to step aside. After only four months, in August 2008, Farber and Wilmot called the merger off.

“There was a significant difference in management philosophies,” Wilmot said at the time. “It became apparent in several weeks it was not a good match. I like to think of it as an annulment [rather] than a divorce. We never really merged operations.”

Unfortunately, this is an all-too common scenario. When forming partnerships, it’s tempting to focus only on the business aspects. This can be a mistake, as Farber and Wilmot discovered. It’s important to remember that it’s not just businesses that will be merged but people too. Some things to consider:

• Do you and your potential partner want the same things for the company, now and in the future?• Do you have the same idea of how to reach those goals?• Do your managerial styles complement or clash?• Are your values similar?• How will disputes be addressed? How will disagreements be settled?

The questions go on and on, and it’s crucial to address these questions before signing on the dotted line. Creating a Partnership Charter is a good way to do this. A Charter is a comprehensive agreement on critical issues that goes far beyond the minimal requirements of a legal partnership agreement. (For more information on the content of a Charter, read “Partnership Perils: Planning to Prevent Them.”)

The conversations may not be easy, but in the end, the partnership will be stronger and have a better chance of long-term success.